Chapter 2 Flashcards
(25 cards)
What are three advantages of using a fact-finding survey?
i) Assists brokers when identifying potential losses
ii) Assists brokers not to sell coverages client does not need
iii) Assists brokers in collecting information needed by insurance companies
What are three benefits of commercial property checklists and which is most important to brokers?
i) Assists brokers when identifying potential losses
ii) Assists brokers to make sure coverages are not overlooked
iii) Assists brokers in reducing errors and omission losses
Explain characteristics of the following construction classes: Fire Resistive / Non-Combustible
a) Fire Resistive: This means that building has achieved standard set in hours to remain structurally sound when attacked by fires.
b) Non-Combustible: These buildings are slightly below standard of resistive structures.
What are five areas insurers request additional information when buildings are over 25 years old? (WHORP)
i) Wiring
ii) Heating
iii) Over-current protection
iv) Roof
v) Plumbing
What are five hazards common to commercial buildings? (HOPED)
i) Heating
ii) Occupancy
iii) Protection
iv) Electrical services
v) Detachment
What type of wiring provides the best protection?
Copper
What type of over current protection provides the best protection?
Automatic circuit breakers
What is detachment?
This is the distance of insured building (or property) to commercially rated buildings.
Describe the two types of protection?
i) Private protection: These are steps insured has taken within buildings to reduce frequency and severity of losses such as sprinkler systems or fire extinguishers.
ii) Public protection: This refers to protection methods used by municipalities, or outside steps, such as fire departments.
When buildings have no protection from local fire departments, what term is often used to describe these buildings?
Unprotected
Define “adverse selection”
This happens when only those accounts exposed to certain perils are the accounts applying for coverage, such as those near rivers, are the only accounts applying for flood coverage.
What are four functions performed by underwriters?
i) Risk selection
ii) Risk classification
iii) Rating and rate making
iv) Policyholder’s services
Define “risk classification”.
Taking all accounts similar to each other and placing them in categories based on their likelihood for loss.
What is the main advantage of risk classification?
This allows insurers to calculate proper premiums to charge
Identify an internal source underwriters utilize when rate making.
Staff inspectors
Identify an external source underwriters utilize when rate making.
Insurer’s Advisory Organization (IAO)
What are two influences which cause premiums to change from year to year?
i) Increasing claims paid due to inflation
ii) Rates of return on insurance company’s investments
What are characteristics of soft markets?
Heavy competition among insurers as well as lower premiums.
What are characteristics of hard markets?
Underwriting standards become more strict and premiums rise.
What is a physical hazard?
These are hazards which arise from the use of insured property which cause perils to occur.
List six types of physical hazards common to all commercial risks and provide an example of each. (PET HOG)
i) Protection: Example: Fire extinguishers
ii) External Exposures: Example: Being next to restaurants
iii) Type of Building Construction: Example: Fire resistive vs. Frame construction
iv) Housekeeping: Example: Presence of waste materials or general cleanliness.
v) Occupancy: Example: Library vs. Welding shop
vi) Geography: Example: Access to old urban buildings may be restricted
What is a moral hazard?
These are subjective characteristics of clients which may cause losses to occur.
List three moral hazards and provide an example of each. (FAM)
1) Financial Condition: Example: Clients experiencing financial difficulty may be tempted to cause losses.
2) Associates: Example: Clients having relationships with known criminals.
3) Moral Character: Example: Often having authorities questioning actions of clients.
What is accommodation business?
Poor accounts underwriters agree to insure as favor to broker.
